Weekly Business Insights 11/08/2023
Unlock the Code: Navigating Hospital Strategic Pricing. Where is Supply Chain Transformation Headed? Industry Leaders Examine PPE in a Post-COVID Landscape.
Unlock the Code: Navigating Hospital Strategic Pricing
Of the various factors that impact healthcare organization’s profitability, pricing is an often-overlooked lever that can be controlled over. Even those healthcare organizations that do address pricing sometimes undermine their strategic pricing strategies by failing to address lesser-of-charge clauses or skipping the charge description master (CDM) modelling process, which can wreak havoc on their bottom line. The price transparency mandate added another layer of complexity, as raising prices to increase reimbursement may have adverse effects.
To help overcome this conundrum, we need to examine the challenges of strategic pricing, “lesser of” charges, the hidden impacts of denials, and how modelling can help you leverage every opportunity to generate net revenue.
In an industry where margins are razor-thin, proactivity is key. Don’t ignore annual contractual provisions that allow for CDM rate hikes. Even if an increase feels unnecessary, modelling neutral price changes will often reveal hidden revenue opportunities. What seems like a minuscule adjustment on paper can translate to millions in revenue increases. Before dismissing any change, ensure you’ve explored all possible outcomes through modelling.
“The practicalities of building resilience onto our supply chains are easier said than done,” Nath said. “We all have similar sole-source suppliers we have to deal with and depend on. We obviously try and minimize the extent to which we’re exposed to a singular sole source but it’s part of med tech that’s going to be hard to get out of.”
Another change is that investor expectations previously centered around growth, but now shareholders care deeply about margins and cash. Building resilience in the supply chain over the past year, Nath said, may not have fallen in line with what investors expected.
Where is Supply Chain Transformation Headed? 3 Insights
The traditional approach to supply chain operations is well-established in healthcare—and, simply put, outdated. Centered around group purchasing organizations (GPOs), the practice of keeping many suppliers on contract, with pricing tiers only revisited every two to three years, creates unstable environments that do not support the challenges today’s healthcare organizations face, nor do they align with the goals of value-based care.
It’s estimated that 97% of hospitals rely on GPOs to optimize pricing for supplies through collective purchasing power. It’s a model that has served health care for more than 100 years, but it lacks the strategic focus that such an influential part of operations warrants: supply chain costs in the average health system contribute to a whopping 37% of total cost of care, according to Gartner research.
The role of technology in deriving deeper insights from supply chain operations must also move front and center. Health systems need robust solutions that allow for highly accurate data capture in real time along with reporting tools that operationalize this information to drive key decisions. GPOs should play a key role in providing support and helping supply chain leaders maximize the value of data insights.
Finally, health systems need partners on their supply chain journey. They key is identifying the right collaborators who will share common goals—and being open to upleveling supply chain strategy to position well for the future. When GPO partners share common ground with their health system partners, the opportunities to innovate and move supply chain from transactional to strategic are significant.
Industry Leaders Examine PPE in a Post-COVID Landscape
“According to an article from Becker’s Hospital Review, hospitals are facing intense financial pressures across today’s healthcare landscape—more than 50% currently operate on negative margins. An article from the AHA [American Hospital Association] said that with a heightened focus on finding savings within the supply budgets, hospitals are now refocused on providing quality care while maintaining profitability. OR managers face unprecedented challenges in driving staff and patient safety while still achieving optimum savings. The post-pandemic impact of staffing shortages and inflationary impacts only further exacerbate these challenges.”
“The traditional approach to identifying hospital savings is to focus on purchase price savings,” He added. “This approach does not always consider the total cost impact to the facility of swapping out products for lower-priced alternatives. By recognizing hospital purchasing power as a driving force for total value impact, a value-based purchasing (VBP) approach combined with the LEAN methodology can help OR managers achieve the outcomes that matter—at the lowest possible price.